California and New York, two big holdout states in a $25 billion mortgage settlement, are expected to join the deal, smoothing the way for an announcement on Thursday, according to a person familiar with the matter.
Florida, with its large distressed housing market, was also close to joining the settlement that resolves civil government lawsuits over faulty foreclosures and servicing misconduct by top U.S. banks, a separate person familiar with the deal said on Wednesday.
The announcement will cap more than a year of chaotic negotiations among state and federal officials, and the banks, who have been accused of using robosigners and unlawful documentation to deal with a flood of foreclosures.
The Obama administration has estimated that up to 1 million homeowners could benefit from the deal through mortgage writedowns and other forms of relief.
The settlement has been billed as complementing other government programs designed to boost the housing market that has been a drag on the economic recovery, a key issue for President Barack Obama as he fights for re-election in November.
The settlement has been estimated at up to $25 billion in value, but federal officials have said the actual relief to homeowners could be closer to $40 billion because of the way the deal is scored.
The core group of banks involved in settlement talks are Bank of America Corp
More than 40 states said they would join the settlement in advance of a February 6 deadline, but several states continued negotiations to address concerns specific to their state.
The value of the state and federal settlement would have dropped significantly if California and Florida decided not to join.
A handful of other states that had dragged their feet in signing on, including Delaware and Massachusetts, are expected to also participate in the settlement, but the situation is still fluid, the first person familiar with the matter said.
Dissident states and several activist groups had criticized earlier terms of the proposed deal as too lenient toward the banks.
California and New York had stayed on the sidelines over concerns they would not be able to pursue further mortgage-related investigations.
California, one of the hardest-hit states in the foreclosure crisis, also wanted assurances of how much relief would go specifically to its homeowners.
The proposed settlement distributed last month to state officials included rough estimates on the benefits each state's homeowners might receive, but did not include guaranteed numbers.
California received a guarantee its struggling homeowners would receive around $8 billion in relief, two people familiar with the negotiations said. The state itself would receive around $430 million for foreclosure prevention and other housing efforts.
New York Attorney General Eric Schneiderman, for his part, will be allowed to continue with a lawsuit he filed last week against three of the banks involved in the talks, according to one person familiar with the deal.
The New York suit initially was seen as a stumbling block, because it accused the banks of some conduct expected to be resolved in the settlement.
Schneiderman will also play a leading role in a federal-state working group Obama formed last month to investigate misconduct in the pooling and sale of risky home loans.
Under the settlement, the banks would provide $17 billion in loan modifications for delinquent borrowers, but the actual homeowner benefits from modifications would be valued at $32.3 billion, according to a source familiar with the deal.
It would also include $3 billion in refinancing for homeowners who are current on their payments but unable to refinance because they owe more than their homes are worth; and around $1.5 billion in direct payments of up to $2,000 each to borrowers who lost their homes to foreclosure,
Participating states will also receive a total of roughly $2.5 billion for housing programs.
Representatives for Bank of America, JPMorgan, Wells Fargo, Citigroup and Ally declined to comment.
Representatives for the attorneys general in New York, Massachusetts and California declined to comment.
A spokeswoman for Florida Attorney General Pam Bondi said late Wednesday that Bondi is actively involved in the settlement discussions.
While Attorney General Bondi has not yet joined the settlement, she is hopeful that a resolution will be reached soon, spokeswoman Jennifer Meale said.
The state will receive around $350 million, and its attorney general is working to receive a guarantee similar to the one California received, the two people familiar with the matter said.
A spokesman for Delaware Attorney General Beau Biden, who is the son of U.S. Vice President Joe Biden, said the attorney general is still considering the proposed settlement terms.
(Reporting By Aruna Viswanatha in Washington, D.C., Karen Freifeld in New York, and Rick Rothacker in Charlotte, N.C.; Additional reporting by Kevin Gray; Editing by Tim Dobbyn)